Drink Industry: The Squirt Company Overview Essay

Industry: cyclicity, seasonality, ease of entry/exit

• Sales in the soft drink industry have been on the decline since 2004. This is unlike in the 1990s, when the main industry players enjoyed increased market share and sales volumes. However, in recent years, consumers have tended to shy away from fizzy, sugary drinks and now prefer drinks that connote a healthier image. For this reason, there has been a dramatic increase in the demand for and sales of teas, water, as well as other noncarbonated beverages, even as the sales for carbonated drinks continues to plummet.
• The decline in the sales of soft drinks can also be attributed to increased competition as an increasingly higher number of players have entered the soft drinks market. As a result, a lot of effort has been put towards the advertisement of soft drinks products in the hope of seizing a position of the market share from competitors, even as the market size for carbonated soft drinks continues to shrink year after year. At the same time, there has also been an increase in the number of substitute products in the market, thereby giving customers more options. Changes in lifestyle and cultural preferences have also affected sales in the soft drink industry.
• These beverages are available in bottles, cans and fountain, and this gives consumers a variety of choices.
• The soft drinks industry in the United States is valued at $60.3 billion.
• Carbonated beverages are commodities that people buy only when they need to consume them. There is no particular trend for the purchase of the commodity, although there is a variety of different drinking methods or time of needs (for example, during parties, on holidays, or movie trips)
• The soft drink industry is characterized by brand loyalty and as such, companies in this industry are always trying to reach out to new markets in a bid to increase their sales revenue.
• In the past years, soft drinks manufacturers have tended to manufacture products that are high in fat and sugar but due to increased consumer awareness on the need to consume healthy foods, most of these companies have had to start producing healthy soft drinks. Some of the new ideas that have cropped up include low-calorie drinks, sugar-free drinks, drinks with added fiber, drinks that have been infused with green tea, as well as drinks with added antioxidants.
• The industry tends to be Cola flavored dominated (80% of coca-cola 55% of Pepsi cola brand beverage volume) top ten brands account for 73% of soft drinks sales in US
• It has proved hard to enter into this industry because:

-There are well known and established brands in the industry, and these tend to be very competitive in a bid to protect their market share.

-It is hard and expensive to acquire bottlers/distribution

-The soft drinks sector is mature industry, meaning that products are well known with lots of history

• ¼ of the soft drinks industry is dominated by the non-cola brands and flavored soft drinks gained a lot of popularity in recent years (30% in retail sales)
• The most typical retail outlets are the supermarkets (they account for 31% of the carbonated soft drink retail sales). Others include convenience stores, vending machines, fountain service, mass merchandisers, and thousands of small retail outlets
• With such a well-established market, advertising and promotion is critical in order to gain market share

– Local advertising and promotion programs are jointly implemented and financed by concentrate producers and bottlers (costs split 50-50)

Competitors: size, strengths, weaknesses, responses

• Citra is the biggest competitor of Squirt, this is because they are in the same market, and have the same buyers (those who crave thirst quenching drinks, and are in the middle of “hip and cool” and “not hip and cool”). The major difference between the two brands is that Squirt has no caffeine (better for kids) and ranks higher in thirst quenching.
• Big brands like Coca-Cola and Pepsi Cola have their products in the Grapefruit-Citrus Carbon Beverage market, all which have good recognition and marketing efforts (Mountain dew is Pepsi and 4^th rated in top ten)
• Distribution practices are important, as are the relations with bottlers.
• Coca-Cola commands 44.1% of market share, while Pepsi- Cola accounts for a market share of 31.4%. On the other hand, DPSU commands 14.7% of the market share (see exhibit).
• Carbonated grapefruit is sold directly with Coca-Cola’s two Fresca (targets adults, as a mixer. Fastest growing in US), and Citra (sugared, with no diet version, targets teens and is caffeine free).

Porter’s Five Forces

The bargaining power of customers

In the soft drink industry, the bargaining power rests with the consumers. As an elastic product, soft drinks are not mandatory for our daily life and as such, consumers can do without them. On the other hand, consumers rarely purchase soft drinks in bulk. The preference of most customers is to find soft drinks in convenient locations. This can be a good thing for the Squirt brand because it means that they are in a better position to charge more for purposes of convenience.

Suppliers’ bargaining power

Squart has continued to enjoy comparatively good bargaining power relative to its suppliers. Bearing in mind that no exotic materials or complicated process is necessary in creating syrup concentrate, this makes is somewhat easier for Squart to replace its suppliers.

Threat of new entrants

90 percent of the soft drink market is controlled by Coca-Cola, Pepsi-Co, and DPSU. Moreover, the leading 10 soft drink brands in the United States are also controlled by the three aforementioned companies.

What this means is that it is not impossible to enter into the soft drink market, but it remains very complicated to gain a market share. On the other hand, considering that the soft drink industry is estimated to rake in $ 60 billion every year, this is an indication that a new entrant into the industry would still find room for expansion.

Threat of substitute products

In the grapefruit segment, Squirt is faced with two direct competitors, while in the citrus category, there are many more competitors. In the United States alone, we have over 900 registered brands of soda. However, none of the Squirt’s products have been targeted and positioned to serve a group characterized by same taste.

With regard to the soda market however, we have many more soda brands in the market. It is important to also note that Squart has attempted to position its brand as thirst quenching. Due to this, Squart has to also contend with competition from other beverages, including but not limited to sport drinks and water.

Competitive rivalry intensity

There is a lot of competition in the soft drinks industry. For many years, Coca-Cola and Pepsi-Cola have been fighting over the control of the cola market. As a non-cola soft drink, Squirt is ranked in a different category from the cola market.

Some of the main competitors facing Squirt in the non-cola soft drink market include Mountain Dew, Mellow, as well as Fresca and Citra. Every competitor in the market spends huge sums of money in advertising efforts with the aim of seizing a portion of Squirt’s market share.

Customer: who, when, where, how, why

• High buyer power translates into many substitutes. This results in a wide choice of products in the industry. What this means is that the availability of beverages in the soft drinks industry is very high (located everywhere).
• Large age groups: main industry buyers are those between the ages of 20 to 49 (However, Squirts’ biggest sales are not with this trend; the brand is mostly popular with consumers in the 6-12, 40-49, and 60+ age brackets. Most of them purchase it is kid friendly. Parents buy it for their won consumption and for their children. They also have an attachment to it for historical reasons. This presents the company with a huge opportunity because they can grow the brand with the buyers.
• Population growth has been compounded by rising per capita consumption.
• Frequent buyers in the U.S consume 849 ounces of soft drinks / 2.3 servings a day. The consumption of soft drinks in the United States is more than that of water. In 2000, the consumption rate for soft drinks in the United States was 53 gallons per person.
• Preference is established and depends on use (is it for supper? party? alcoholic mix? etc)
• There is established loyalties (some prefer one over the other), and this could be a challenge to the industry players.
• Per capital higher consumption is among Hispanics and African Americans
• The Hispanic community is most promising in the United States because this group has continually grown and shows a lot of preference for carbonated beverages (for example in Mexico, it is a big seller)
• It is a very convenient beverage to gain because of such large availability.

Company: SWOT, mission, goals, marketing objectives

• Candbury Schweepes PLC / Dr. Pepper/7Up
• DPSU is the largest division of Cadbury Schweppes PLC, which is the third largest soft drink company in the world (sales in 200 countries).
• Largest non-cola enterprise in North America and also owns regional brands, overall third largest soft drink seller.
• Dr. Pepper and 7Up are ranked in the top ten (measured by market share) the remaining brands are often market leaders in their sectors.

Squirt

• The Product: caffeine-free, low-sodium, carbonated soft drink that is a blend of grapefruit with a tangy, fresh citrus taste – Regular and diet (Diet and ruby red account for 20% of sales)
• Squirt unique, thirst quenching attribute should be the dominant positioning
• Squirt is the best-selling grapefruit soft drink in the United States
• Well known, historical impact (probably by 60+ is a big chunk of overall sales) – Begun during the great depression, historical recognition (page 208 history)
• Sales have fluctuated over the years
• No defined Target market, but it is clear that multi gene families have potential
• Advertising has not been effective
• Compared with the other competitors in the carbonated grapefruit drink category, Squirt has the largest brand awareness
• In the United States, 50 percent of Squart’s sales can be accounted for by 5 Squart bottlers. They are located in Chicago, Los Angeles, San Diego, Portland, and Detroit. In addition, about 50 percent of Squart case volume can be attributed to 100 bottlers. These bottlers are to be found mainly in Western United Stets. For example, about 38 percent of the overall Squart case volume is to be found in California alone.
• Squart remains the primary brand, but it also enjoys two brand extensions. They are Ruby Red Squart and Diet Squart. The two extensions have enjoyed a lot of success in the market and they are responsible for nearly 20 percent of Squart sales. The first carbonated drink by Squart to be sweetened using Nutri-Sweet is Diet Squart.
• Two brands from Coca-cola are the main direct competitors of Squart. They are Citra and Fresca. Fresca is a direct soft drink free of caffeine, with adults of 30 years and above as its target consumers. On the other hand, Fresca is a sugared caffeine soft drink with teens and young adults as the target group. The case volume sales of Squart are by far more than the combined sales of Fresca and Citra.
• One of the highest advertising and promotion expenditures of all brands in the citrus carbonated beverage market brands – Freestanding inserts in newspapers, spot TV, cable TV, and spot radio – Retail consumer and trade promo with cooperative advertising arrangements with individual bottlers – Expenditures are reasonably less than competitors and retail trade, consumer promo and coop advertising arrangements often exceed media advertising expenditures, which amounts to between 20 and 25 percent in dollar sales
• Weak slogans

SWOT analysis

Strengths and weaknesses

Grapefruit soft drink remains the leader in the soft drink market. In addition, the brand has gained the highest level of recognition in as far as the grapefruit soft drink market is concerned. On the other hand, DPSU lacks the necessary resources and market share that such leading global brands as Pepsi Co and Coca-Cola have to offer to the market. What this means is that DPSU has a smaller bargaining power in the market and consequently, a smaller advertising budget as well.

Opportunities and Threat

The Squirt brand continues to enjoy a lot of popularity among the Hispanic population and as this market continues to enjoy an increased demand for grape fruit soda, thanks to an increase in population, the company is in a better position to increase its sales volume in this particular target market.

On the other hand, the company does not have a large advertising budget compared to two of its main competitors that is, Pepsi Co and Coca-Cola. This may threaten attempts by the company to maintain the existing market share for its brand that has for the most part enjoyed flat sales.